In March 2025, the European Union published a white paper for European Defense Readiness 2030, which identifies defense needs and envisions a massive €800 billion four-year “ReArm Europe” investment plan. This initiative is a significant step change from the EU’s prior defense industrial strategy and earlier funding programs.

Rearming Europe would be financed by €150 billion in EU common debt made available as loans to Member States and €650 billion in national spending that EU fiscal rules would not constrain. This new package is intended to support EU Member State efforts to ramp-up defense capabilities and, if implemented, it would effectively double the overall amount of defense spending in Europe. Covington is working with clients in defense industry sectors across the wider West to maximize business opportunities created by this new funding.

Unleashing Europe’s Defense Potential

Given the “rapid deterioration of the geopolitical context and rising tensions,” the white paper pledges to unleash the EU’s resources and latent industrial and technological power on defense. It aims to swiftly increase support for Ukraine and deter Russia’s further aggression, while reducing dependency on U.S. military support. Further, it paves the way to tackle long-term security threats such as the “systemic” challenge posed by China and growing hybrid threats.

The EU seeks to support collaborative capability development among Member States, to enhance coordination and generate economies of scale.  Here, joint procurements will be a privileged tool, notably by setting up a European Military Sales Mechanism. This mechanism will support manufacturing capabilities and deliver more complex projects through aggregated demand and increasing predictability for the sector. To do so, it will incentivise long-term common procurements, as envisioned also by the European defense common procurement act.

In the near-term, investments and procurements on defense industrial capabilities will focus on rebuilding Europe’s depleted stocks of military hardware and equipment. Key capability domains include air and missile defense, artillery systems, ammunition and missiles, drones and counter-drone systems, military mobility, artificial intelligence, quantum, cyber & electronic warfare, strategic enablers and critical infrastructure protection.

To quickly expand its defense capabilities, Europe is also exploring strengthening its defense industrial collaboration with trusted partners such as the Republic of Korea, Norway, and Japan (with which the EU signed Security and Defence Partnerships last year), as well as its traditional allies and partners, such as the United Kingdom and the United States.

Omnibus Simplification on Defense

The European Commission has also launched a strategic dialogue with the defense industry to identify pathways for simplification and harmonization on rules and procedures, which impact the European defense and technological industrial base and limit its agility to ramp-up defense capabilities, in response to calls by Member States to deregulate the industry.

The Strategic Dialogue presents a key opportunity to engage with the Commission and ensure that industry perspectives are well considered. Key regulatory issues to be addressed will include:

• The cross-certification of defense products and mutual recognition of certifications;
• Accelerated grants of construction and environmental permits for defense industrial projects;
• “Removing obstacles” in accessing finance, including sustainable investments.

The discussion will also shape procedures under the upcoming platform for joint purchases of critical raw materials proposed under the Critical Raw Materials Act.

The Commission intends to put forward a proposal for a Defense Omnibus Simplification by June 2025, based on the recommendations of the dialogue. Concretely, the Omnibus will target the Directive on public procurement in the fields of defense and security, the directive on intra-EU transfers of defense-related products, and the rules and procedures to be awarded grants from the European Defense Fund.

Mobilizing €800 Billion for Defense Capabilities and Tech Innovation

The announced ReArm Europe plan will facilitate increased European defense spending over the next four years through a set of five measures.

First, it will entail a new regulation proposal for a Security Action for Europe (SAFE)  instrument to increase European defense spending through a fund of €150 billion of loans raised by the EU and then made available as loans to requesting Member States. SAFE eligibility conditions include the following, among others:

• Procurement must involve at least two countries, one of which must be an EU Member State, and the other must be an EU Member State, an EEA or EFTA State (Iceland, Liechtenstein, Norway, and Switzerland), or Ukraine.
• Third countries with whom the EU entered into a Security and Defence Partnership—such as Korea and Japan—as well as acceding, candidate and potential candidate countries, may negotiate agreements with the EU to participate fully in SAFE procurements.
• Entities from countries that do not have a Security and Defence Partnership with the EU may be eligible for partial participation: up to 35% of the cost of production of the project and under certain conditions. This would include defense firms from the United States and the United Kingdom, although there have been reports that the UK government is in discussions with the EU on security and defence collaboration that would enable full participation.

This proposal will be subject to an expedited legislative procedure that does not require approval by the European Parliament. Then, the Commission will launch a call for interest and Member States will have up to two months to submit their applications, as of the entry into force of the SAFE regulation. Indeed, some EU Member States have already started to prepare expressions of interest for projects involving tens of billions of euro.

Second, the EU has invited Member States to request the activation of the “national escape clause” of the Stability and Growth Pact by the end of April, with a detailed guidance. Under this clause, increased Member State defense spending would not be limited by the 3% budget deficit ceiling of these EU fiscal rules. This increased flexibility is foreseen to facilitate at least €650 billion over the next four years.

Third, the European Commission will propose soon enhanced flexibility and further incentives to use structural and cohesion funds for defense, representing around one-third of EU spending. After a mid-term review of cohesion policies, national, regional and local authorities will be enabled to allocate funds from their current programs towards defense projects.

Finally, the European Investment Bank’s role in defense investments will be expanded, as its recent decisions have also indicated.

*           *           *

The team at Covington is well placed to advise you on these policy developments, and how to engage with the relevant decision-makers in these areas. We can help gather intelligence, analyse legislative initiatives, navigate the complex regulatory environment at the EU and Member State level, and design and execute strategy.

__________________________

Pol Revert Loosveldt of Covington & Burling LLP contributed to the preparation of this article.